Hedge fund magnate John Paulson - who reportedly made $5 billion personally last year - reacted recently to Occupy Wall Street protesters by talking about how much the top 1% of New York City families pay in income taxes. What he didn't talk about was how the same 1% made nearly half (44%) of all the income in the city, or that when all state and local taxes are taken into account, the richest taxpayers in fact pay a lower percentage of their total income in taxes than do people in the middle.

Meanwhile, with unemployment levels stubbornly high, median family income declining and public services under budget pressure, times are getting tougher for almost everyone else.

Public school class sizes in New York City - already far higher than in surrounding communities - are getting bigger still. Our annual survey in September showed that an estimated one-quarter of the city's public school children were in one or more oversize classes as the school year began. After-school programs are disappearing. Art and music have become things of the past in our schools. Hundreds of school aides are on the unemployment line.

The same budget pressure cuts have reduced day care slots for working families, making it that much harder for parents to keep jobs. The Census Bureau says that 20% - one in five New York City residents - have so little income that even if they are working, they have trouble paying the rent and buying food. The same report notes that the number of children in poverty is going up in New York City, now standing at nearly one in three, with even higher numbers in the Bronx and Brooklyn. Using the census figures, median family income in the city has fallen in real terms to a level equivalent to where it was 30 years ago.

Thousands of white-collar and blue-collar families that had been - on the basis of two or three jobs per couple - barely making it every week are now sliding into poverty. And the services that help keep the city livable for them - public schools, public transportation, safe streets - are threatened even more, as Mayor Bloomberg is planning even further cuts next year.

Since 1980, the United States has seen a disturbing pattern of growing income inequality. The real income of middle-class families had effectively doubled between 1945 and 1980 nationwide; at the same time, the top 1% of earners nationwide were doing pretty well, collecting about 10% of all income.

But what had been good fortune for the top earners became a bonanza at the expense of a middle class with declining living standards. Since 1980, the richest 1% in the United States has more than doubled its share of national income to 23%. In New York State that percentage is even higher, 35%; and the richest make New York City, with their 44% share of income, the national poster child for income inequality.

Huge fortunes have been built from deregulation and Wall Street's new ability to make gigantic bets - generally with other people's money - in the stock and currency markets. Yet because the elements of the financial system are so interdependent, the government has had to intervene to prevent a complete meltdown of the economy when those bets went wrong.

Of course, not everyone got bailed out. CEOs who made catastrophic mistakes walked away with tens of millions in golden parachutes, while homeowners in Brooklyn and the Bronx struggled to hold on to their homes.

According to a New York State controller's report in 2010, the average annual paycheck in the securities industry in New York City was more than $350,000 - and that average includes the wages of secretaries and the guys running the copy machines. The good news keeps coming for the city's richest families, whose incomes average $2.3 million a year and who are getting an average break of $124,000 this year on their federal taxes, thanks to the Bush tax cuts.

The current income tax surcharge is a nominal hike on families that make $300,000 or more - with the vast majority of receipts coming from those who make more than $1 million. Bills now before the Assembly and Senate would not only extend the tax past its Dec. 31 expiration, but would amend it to focus directly on the wealthiest people in the state, who would continue to pay the current rate of 8.97%.

Critics claim that an extension of a New York State tax on upper-income earners - which they are already paying - will drive such families out of New York. But no reliable study has ever been able to find a meaningful link between rising tax rates and the relocation of high-income families, and the number of people subject to the millionaire's tax went up in New York rather than down after the higher rate went into effect in 2003.

Pity not the poor millionaires, but the middle- and low-income New Yorkers who are struggling to make ends meet.